Options traders: What do you do over the weekend?

Question

I was disappointed to find out that option time value decays over the weekend. From near money options, it seems like it is actually far cheaper and less risky to sell purchased puts and calls before close Friday and buy them back after the market opens again (if commissions low enough). Similarly, it may be a profitable strategy to sell (or hold previous) calls and puts over the weekend for a few extra % profit over the weekend. What do you do here?

Thanks for your help.

Answer 1

For what it's worth the time decay accelerates in the last 3 weeks of an option, so that would be the best time to sell calls.  By then most of the premiums do not off set the risk for me.

You will always have weekend news risk with your strategy and it is most likely that things will move too fast on Monday morning.

You will also most likely generate a load of commissions and wash sales.

Answer 2

Be careful. What you read in a text/class may not exactly how something works in real life.

Let's look at an extreme example of the situation. Assume Monday the 14th day of the month is a holiday, creating a three day weekend the weekend before expiration. That would seem like the ideal situation to sell on Friday before the close.

The problem you will experience is that thousands of others, including market makers, are aware of the situation. The market makers will compensate by slowing lowering the implied volatility of the options prior to the close on Friday, then raise it again on Tuesday morning. As a result, the difference between Friday's closing price and Tuesday's open will not be nearly as large as a statistical model, such as Black-Scholes, would predict.

As for my own trading, I try to avoid holding long option positions close enough to expiration that time decay (theta) is a significant factor in long positions, even over a weekend.